Archive for the 'Debt' Category

The World Bank has announced that it will give a $600 million grant and a $600m loan towards supporting reforms in Ethiopia’s financial sector including improving the investment climate, according to this story from Reuters, citing a statement on the World Bank website (couldn’t find this).

The Bank is also providing technical support. It will promote public-private partnerships (PPPs) “to improve efficiency in key sectors” including telecom, power, and trade logistics and the support would also help the Government “reduce inefficiencies and operating costs and improve financial performance” in these sectors. It aims to help Ethiopia attract more foreign direct investment (FDI) and raise export revenues.

The World Bank says its increased assistance is a response to reform pledges made by the Government since Prime Minister Abiy Ahmed took office in April. Ethiopia has a huge population of 105m people and a fast-growing economy, but the State and state-owned enterprises tightly control the economy and are increasingly crowding out the private sector. Investors hope this could be changing, according to Reuters.

The 2 overarching challenges identified in 2016 by the World Bank’s systematic country diagnostic study are: “The need for a sustainable financing model for growth, and inadequate feedback mechanisms to facilitate citizen engagement and government accountability”. The Country Partnership Framework is closely linked to the Government’s Growth and Transformation Plan II (GTP II) (2015/16-2019/20).

On the sustainability of financing growth, from the World Bank Country Partnership Framework for the period FY18-FY22:

“..if Ethiopia were to catch up with the average Sub-Saharan Africa (SSA) country in terms of financial liberalization, the rate of per capita GDP growth would rise by 1.9 percentage points per year.”

“Private sector credit is only about 9% of GDP in Ethiopia compared to more than 20% in SSA. The experience of East Asian developmental states such as China, South Korea, and Vietnam shows that private firm growth is needed to lead the development process.”

“While domestic savings have increased as a share of GDP in Ethiopia, the country has experienced a decline in the credit to GDP ratio, suggesting that increased savings are not always entering the formal banking system and/or are going into the booming real estate market. The Government has actively sought to raise domestic savings through measures such as expansion of bank branches among others… a key determinant of domestic savings is the real deposit interest rate. Since this rate is currently negative, households have strong incentives to channel monetary savings into informal savings mechanisms. A negative real interest rate is also a major obstacle to the development of a secondary market for treasury bills, as institutional investors would not earn a sufficient return for voluntary purchase of such assets.”

“Analysis suggests that the absence of a functioning capital market may become a binding constraint for growth and development as the country progresses. Since there are substantial needs for long-term financing in local currency by both the public and private sectors, a well functioning capital market (particularly the bond market) is essential to the long-term development of the Ethiopian economy. The current market is characterized solely by short-term treasury instruments of up to 1 year, the tenor of which does not match the long-term character of the actual investments. In addition, the money market is not functioning with virtually no existing interbank lending. However, there is an active informal market for equities, particularly for bank and insurance stocks, which in turn indicates that there is demand for services of a typical capital market. Failure to establish such a market may mean that future projects could not be financed in an ever-more developed economy. The evolution of this viable capital market will take time, and a comprehensive but targeted approach is required given its current nascent state.”

Cameroon is a big winner at this year’s African Banker Awards, the 10th edition. The winners were announced yesterday (25th May) in Lusaka. Morocco’s Attijariwafa Bank, active in 20 countries, wins the prestigious Bank of the Year Award and GT Bank CEO Segun Agbaje is recognized as Africa’s Banker of the Year for his leadership of the Nigerian banking giant, one of Africa’s most profitable banks.

African Banker Awards have become the pre-eminent ceremony recognising excellence in African banking. They are held on the fringes of the annual meetings of the African Development Bank. Your editor is proud to be among the judges and can comment on the excellence of the many submissions from great banks all over Africa.

For the first time, two Cameroonians feature among the laureates: Alamine Ousmane Mey wins Minister of Finance category or his contribution to socio-economic development in his country. Leading banker and economist Paul Fokam, President of the Afriland First Group, is awarded the Lifetime Achievement Award; he is a serial entrepreneur, a renowned economist and his bank is one of the more important institutions in Central Africa. Cameroon scored a hat trick as Lazard’s credit-enhanced currency swap won the award for “Deal of the Year – Debt”.

Other winners include South Africa’s Daniel Matjila, CEO of South Africa’s Public Investment Corporation, a fund with $139bn funds under management. He was awarded the African Banker Icon, recognising the significant investments by the fund into African corporations and the lead role he has played in driving investment from South Africa into the continent.

The African Central Bank Governor of the Year accolade was given to Kenya’s Patrick Njoroge. Kenya’s central bank, largely unknown a year ago, has managed to navigate a tough economic climate and Patrick has been credited with cleaning up the banking sector in his country.

Speaking at the exclusive Gala Dinner at the Intercontinental Hotel attended by over 400 financiers, business leaders, and influential personalities and policy makers, Omar Ben Yedder, Group Publisher of African Banker magazine, which hosts the awards in partnership with BusinessInAfricaEvents said: “It has definitely been a defining decade in banking in Africa. We have recognised true leaders tonight who are playing a critical role in the socio-economic development of the continent.

“Finance remains a key component of development, be it in terms of financing massive infrastructure projects that today are being wholly financed by consortia of African banks, or SME financing. It’s happening because of strong, bold and visionary leadership. I have been privileged to honour some truly exceptional individuals who have left an indelible mark on the industry over the years.

“We are very grateful to our High Patron, the AfDB, for their unwavering support in this initiative and our thanks also go to our sponsors: MasterCard, Ecobank, Nedbank, African Guarantee Fund, PTA Bank, CRDB Bank, Arton Capital and Qatar Airways for partnering with us and enabling us to reward outstanding achievements, commend best practices and celebrate excellence in African banking”.

Ethiopia saw soaring demand yesterday (4 Dec) for its debut $1 billion Eurobond, after a quick investor roadshow. Total demand was $2.6bn and the yield on the 10-year bond was settled at a relatively low 6.625%, at the lower end of the 6.625%-6.75% price guidance.
According to this report in the Financial Times: “The debut sees one of the biggest, most closed — and, some observers say, most promising — African nations joining a number of other countries in the region that have issued similar bonds in the past 5 years. Africa has become a magnet for pension funds, insurers and sovereign wealth funds seeking higher-yielding assets.”
A Bloomberg report cites Standard Bank Group that African governments such as Ghana, Kenya, Senegal and Ivory Coast and corporates issued a record $15bn of Eurobonds this year as they try to benefit from investor appetite for higher returns before the US Federal Reserve raises interest rates expected next year. The bank says they raised $13bn in 2013. Sovereign issuers accounted for 71%.
It quotes Nick Samara, an Africa-focused banker at Citigroup in London, saying ““Pricing at a 6-handle is very attractive” for the country, similar to Zambia.

The move jumps ahead of the earlier schedule suggested in this report.

Ethiopia needs $50bn over 5 years

The FT quotes Kevin Daly, senior portfolio manager at Aberdeen Asset Management, that the bond’s yield “is decent value for the deal given the limited knowledge and different nature of the Ethiopian economy and the challenges it faces compared to these countries”. Bloomberg says he said Ethiopia made a strong case for infrastructure development and financing needs at investor meetings, “which suggests they will be looking to come back to the market in near term.”.
According to Bloomberg, Finance Minister Sufian Ahmed said on 7 Oct that Ethiopia will probably need to invest about $50bn over the next 5 years, of which $10bn to $15bn may come from foreign investors. Most will be used to develop sugarcane plantations, a 6,000-megawatt hydropower dam on a tributary of the Nile River and the country’s railway network.

Grand Ethiopian Renaissance Dam (credit: www.water-technology.net)

Claudia Calich, emerging market bond fund manager at M&G told the FT that Ethiopia was one of the region’s weaker credits: “I am concerned over lack of transparency and levels of SOE [state owned enterprise] debt.” Mark Bohlund, senior economist for sub-Saharan Africa at consultants IHS, said investors were attracted to Ethiopia on the back of “strong economic growth prospects and limited external indebtedness”. He added: “We wish to highlight that there are still non-negligible risks to repayment.”

Fast 9% growth, limited foreign reserves

Deutsche Bank and JPMorgan were the lead managers for the bond and Lazard advised the Federal Government of Ethiopia.
The bond includes new clauses recently promoted by organisations such as the International Capital Markets Association and dubbed “anti-vulture” clauses. They aim to make it more difficult for investors to hold out against restructuring plans if the country defaults on its debt, as happened recently with Argentina.
Ethiopia first credit ratings came in May, as reported here. Moody’s Investors Service rates it a non-investment grade B1 with a stable outlook, while Standard & Poor’s and Fitch Ratings awarded B, one grade lower.
Ethiopia has some of the fastest growth rates in Africa, around 9%, according to the International Monetary Fund. According to Reuters, the IMF said in a September report that the risk of Ethiopia facing external and public “debt distress” remained low but said it was on the “cusp of a transition to moderate” risk. It estimated public debt at 44.7% of GDP in fiscal 2013/14. Ethiopia’s foreign reserves covered only 2.2 months of imports in 2013/14 and capacity to increase this remains under pressure due to limited capacity to increase exports and foreign investment.

African debt warning

According to the African Development Bank’s Making Finance Work for Africa website (www.mfw4a.org), a few weeks ago the IMF warned African States against rushing to issue Eurobonds, saying they may face exchange-rate risks and problems repaying debts. African governments facing falling levels of foreign aid are on a borrowing spree to pay for new roads, power stations and other infrastructure, prompting concern this could raise debt levels and undermine growth.
“It comes with some risks,” the director of the IMF’s African Department, Antoinette Sayeh, told Reuters. “Whereas what it costs the countries to issue these bonds can often look lower than what they would pay on domestic borrowing… the real cost in the final analysis will also depend on the evolution of exchange rates in the course of the life of the bond issuance.”
Kenya’s debut $2bn Eurobond had launched at 6.875% in June but fallen to 5.90% when it issued a new tranche in late November, indicating that investors did not share the IMF’s concerns. Kenya’s 10-year bond was trading at 5.88% on 4 Dec and Kenya has a much higher average gross domestic product (GDP) per capita and much better advanced African capital market and securities exchange than Ethiopia. The bond prospectus listed Ethiopia’s GDP per capita at $631.50 in fiscal 2013/4.

Rwanda plans to return to Eurobond markets in 2015 and raise up to $1 billion for infrastructure, including an airport and power plants. As global interest rates stay low, sub-Saharan African countries have raised $6.4bn through debt issues in 2014, compared to $9.7bn in all 2013, according to Bloomberg news agency last week, citing figures from Standard Bank Group Ltd. “the continent’s biggest lender”.
Rwanda plans to upgrade the main international airport outside Kigali, to build a 150-megawatt geothermal power plant and to fund a methane-fired power project to produce up to 100 MW by extracting methane gas from under Lake Kivu.
Bloomberg reported last week that President Paul Kagame said in an interview the country felt investor demand was still strong, after its first $400 million bond in April 2013 was more than 8x oversubscribed: “We might go for double that or more, up to $1 bn.”
“People who want to see Africa develop come to Rwanda particularly because we have set up a very good environment that makes things work for us and for our partners who come invest with us.” Economic growth has averaged 7% annually over the last 5 years and the International Monetary Fund (IMF) forecasts growth of 7.5% in each of 2014 and 2015, according to Bloomberg.
The agency says that Rwanda’s non-concessional borrowing limit, set by the IMF, is $250m for the 2014-15 fiscal year. It quotes Samir Gadio, head of Africa strategy at Standard Chartered Plc , saying the IMF has raised the ceiling when African countries could turn to offshore markets at cheap interest rates: “But the other consideration is that external debt sustainability should not be jeopardized… Given the size of the economy, a $1bn Eurobond would represent around 13% of GDP, which is significant.”
The interview came on 5 Aug in Washington DC when US President Barack Obama highlighted $33bn in commitments to Africa, including $14bn in investments from companies such as General Electric Co. President Kagame said: “It’s a very significant step in the relationship between Africa and the U.S… If things are done right, the relationship, the partnership between the United States and Africa, has the potential to bypass that relationship between Africa and Europe. Also the relationship between Africa and China.”

At the recent Africa Debt Capital Markets Summit (ADCM 2014) in London I had the privilege of moderating a panel focussed on Nigeria’s Debt Capital Markets. I was joined by some of the key actors currently working to build deep and active debt capital markets in the country, including representatives from the Nigerian Sovereign Investment Authority (NSIA) and the Securities & Exchanges Commission (SEC).

The following were highlighted as the main challenges:
1) A need for improved coordination within the Federal Government of Nigeria (FGN) to ensure that the FGN’s own bond-issuance programme and rate-setting policies do not crowd out sub-sovereign and corporate borrowers from accessing the debt capital markets.

2) Greater efficiency, transparency, and lower transaction costs thereby encouraging more sub-sovereign and corporate borrowers in Nigeria to use the debt capital markets.

The panel gave examples of initiatives that have been or are being developed to overcome these challenges:
1) The Nigerian Mortgage Refinancing Company, in which the NSIA is a shareholder, was highlighted as an example where different agencies of the FGN have successfully cooperated to build an initiative that will play a significant role in developing Nigeria’s debt capital markets.

2) When GuarantCo, a development finance fund that my firm manages, credit-enhanced one of the earliest Nigerian corporate bonds in 2011 it took nearly 18 months to obtain SEC approval. With the benefit of technical assistance from GuarantCo, the SEC can now approve in 2 weeks.

3) GuarantCo is also partnering with the NSIA, to develop a Nigerian Credit Enhancement Facility that will credit enhance infrastructure bonds, improving their credit ratings to investment grade, thereby enabling the debt capital markets to finance critical infrastructure.

The story of how Nigeria’s debt capital markets develop will be one based on marginal gains such as those above. It remains however a story full of positives and potential.

Top speakers including Government leaders, policy-makers, bankers, investors and experts will be debating the future of Africa’s debt capital markets on Monday 30 June at the London Stock Exchange. The African Debt Capital Markets ADCM 2014 conference is organized by African Banker magazine. I am honoured to be moderating some sessions.

Among the conference highlights are debates on whether African governments have been using bond proceeds wisely, the future for African bond issuances, local currency markets and the challenges of deepening the debt capital markets. There will be calls for policy-makers to make changes to support securitization and other steps to boost finance for development, jobs and growth, following successes in Asia and the world.

Speakers include the Hon Kweku Ricketts-Hagan, Ghana’s deputy Minister of Finance, and Dr Abraham Nwankwo, Director-General of the Nigeria Debt Management Office and Jaloul Ayed, a former Minister of Finance from Tunisia. There will also be Mary Eduk from the Securities and Exchange Commission in Nigeria, Uche Orji of the Nigeria Sovereign Investment Authority, and Stephen Opata from Bank of Ghana.

Stock exchange leaders include Sunil Benimadhu, dynamic head of the African Securities Exchanges Association and CEO of the Stock Exchange of Mauritius, Moremi Marwa CEO of the Dar es Salaam Stock Exchange and Innocent Dankaine from the Uganda Securities Exchange.

Banks, fund managers and stockbrokers include HSBC, Renaissance Capital, Investec, Ecobank and Exotix and there will be many leading legal and other experts including rating agencies Moody’s and Fitch.

There will be a special focus on the Nigerian Debt Capital Markets. Other panels will cover infrastructure, public-private partnerships, sovereign Eurobonds and local currency markets, shadow banking, Islamic finance, new institutional investor trends, and Africa’s standing among global markets.

Ethiopia, Africa’s fifth biggest economy, is thinking of a debut Eurobond, after it received its first international credit ratings on 9 May. With a population of some 90 million it is second-most populous country in Africa, after Nigeria. Growth has been some 10% a year, making it the fastest-growing economy and this growth has been sustained through infrastructure investment rather than resources.

Fitch rating agency assigned a long-term foreign and local currency Issuer Default Debt Rating (IDR) of “B” with stable outlook. This matches Fitch’s ratings for Kenya and Uganda, according to Reuters. Standard & Poor’s (S&P) assigned “B/B” foreign and local currency ratings and also said the outlook was stable, reflecting the view that strong growth will be maintained over the next year and the current account deficit will not rise.

According to a press release from Fitch: “With an average real GDP growth of 10.9% over the past five years, Ethiopia has outperformed regional peers due to significant public investments in infrastructure as well as growth in the large agricultural and services sectors. Despite a track record of high and volatile inflation, it declined significantly in 2013, reflecting lower food prices and the authorities’ commitment to moderate central bank financing of the government.

“Fitch expects real GDP growth of 9% in 2014 and 8% in 2015. Ethiopia’s growth over the medium-term can be sustained by large, untapped resources, including large hydro-electric potential. However, the private sector’s weakness, reflecting the country’s fairly recent transition to a market economy, and its inadequate access to domestic credit, could limit growth potential over the medium-term as public investment slows.”

According to S&P press release: “The ratings are constrained by Ethiopia’s low GDP per capita, our estimate of large public-sector contingent liabilities, and a lack of monetary policy flexibility. The ratings are supported by strong government effectiveness, which has halved poverty rates over the past decade or so, moderate fiscal debt after debt relief, and moderate external deficits. Ethiopia’s brisk economic growth–far exceeding that of peers–also underpins the ratings.” S&P forecasts GDP growth at 9.1% in 2014, 9.2% in 2015 and 2016 and 9.3% in 2017. IMF estimates in the World Economic Outlook database are lower, at a still very creditable 7.5% for 2014 and 2015 and 7.0% for 2016 and 2017.

“Ethiopia’s economic growth has consistently well outpaced the average for peers in Sub-Saharan Africa, averaging at least 9% real GDP growth over the past decade, partly due to significant government spending in public sector infrastructure. We estimate that real GDP per capita growth will average 6.5% over 2014-2017. The government has primarily invested in transport infrastructure (roads and rail) and energy (power generation through hydro). Agriculture has also been a key growth driver.

“We estimate GDP per capita at a low $630 in 2014. However, strong economic growth has translated into significant poverty reduction and fairly homogeneous wealth levels. According to International Monetary Fund (IMF) data, poverty declined to about 30% in 2011 from 60% in 1995.

According to S&P: “We expect current account deficits to average 6% of GDP over 2014-2017, driven by rising imports of capital goods and fuel. Ethiopia has a services account surplus, predominantly due to Ethiopian Airlines’ revenues, and large current account transfers mostly made up of remittances that we estimate at about 10% of GDP. Over 2014-2017, we project that gross external financing needs should average 118% of current account receipts and reserves.”

Ethiopian Prime Minister Hailemariam Desalegn had told Reuters in October (see also below) that it planned a debut Eurobond once it had secured a credit rating, though he gave no time frame.

The state and state-owned companies continue to dominate the economy and key sectors such as banking, telecoms and retail are closed to foreign ownership, with state monopolies still dominating telecoms, power and other services and state-owned banks still predominant in banking despite many private banks existing. S&P says there could be room for an upgrade “if we saw more transparency on the financial accounts of Ethiopia’s public sector contingent liabilities and their links with the central government. We might also consider a positive rating action if we observed that monetary policy credibility was improving, either through better transmission mechanisms or relaxed foreign exchange restrictions on the current account.”

In December Reuters reported that Ethiopia had hired French investment bank and asset manager Lazard Ltd in a bid to select rating companies and secure its first credit rating

IMF director warns of risks to sustaining growth

In a presentation last November by Jan Mikkelsen, IMF Resident Representative for Ethiopia titled “Regional Economic Outlook for Sub-Saharan Africa & Macroeconomic Issues for Ethiopia” he praises solid growth and price stabilization but warns about a large fiscal deficit, an appreciating real exchange rate, declining competitiveness and increasing trade deficit. In his powerpoint presentation, he says there is a “Large fiscal deficit without appropriate financing options. This leads to: large domestic borrowing; crowding out of credit to private sector; risk of debt distress; large exposure of banking system to public enterprises; and inflation concerns. He is concerned about the “Non-functioning FX market, FX shortage, and competitiveness,” as well as “Failure to develop financial sector and markets”. (NOTE: The Ethiopian Government has resisted setting up an organized and regulated securities exchange, even for locals only, and this has led to a plethora of unregulated IPOs and problems for investors). Mikkelsen adds that Ethiopia is “Missing out on private sector dynamics – opening up! Tap into FDI flows!”

He warns that the Growth and Transformation Plan (2009/10-2014/15) had estimated to invest $36 billion in public-sector financing and had achieved $11.2bn of investment in the first 3 years, leaving $22bn to be invested in identified projects in the last two years, which would be 19.7% of GDP, of which 9.9% could be domestic financing and 9.8% external. He pointed out that this meant less credit to the private sector, with banks cutting back their credit growth to non-government and giving 83% of this “non-government” share to state-owned enterprises and only 17% to the private sector.

His policy recommendations included enhancing competitiveness via exchange-rate flexibility and cutting logistic costs for trade, phasing out the forced 27% bill holding restriction on banks by the National Bank of Ethiopia, developing a securities market and making interest rates flexible and that putting the private sector in the driving seat is the only way to create sustainable employment opportunities.

Bloomberg cited Finance Minister Sufian Ahmed in December saying: “The main challenge is investment financing needs. We know it’s huge.” He said funding targets would be met by increased domestic financing and borrowing as much as $1bn a year on non-concessional terms from China, India and Turkey and key projects will also be prioritized, he said. According to that report, the Government planned to spend ETB 105.2bn ($5.5bn) on infrastructure and industry including hydropower dams and sugar plants in the 12 months ended 7 Jul 2014 and ETB 70.7bn in the year to July 2015, according to the GTP that ends in mid-2015.

Ethiopia’s PM explains economic policy

The Reuters interview with Prime Minister Hailemariam Dessalegn gives good insight into the Government’s rationale for maintaining control. It is worth reading. He said other bonds could come from the rating.

The Government aims to move from a largely agrarian economy into manufacturing, including textiles. Hailemariam said this was no time for a change of tack, either by selling monopoly Ethio Telecom or opening up the banking industry – now dominated by 3 state banks – to foreigners. “Why does the government engage in infrastructure development? It is simply to make the private sector competitive because in Africa the lack of infrastructure is the main bottleneck. From where do we get this financing? We get this from government banks,” he said. “We engage ourselves in railway construction simply because we get revenues from telecoms.”

He said neighbouring countries which have opened up their banking industry to foreigners had lost a source of funds. “They have handed over their banks to the private sector and the private sector is not giving them loans for infrastructure development.”

He added that the Government was channelling loans to business, while income for the state from selling licences or taxes could not match Ethio Telecom’s annual revenue of ETB 6bn ($318m).

This Thursday is the African Debt Capital Markets Summit 2013, at Bloomberg in London. This is the 3rd annual conference organized by IC Publications and your editor will be one of the panel moderators. As usual, the conference brings top international speakers on topics such as developing and deepening Africa’s debt markets and institutional changes needed; structured finance and infrastructure bonds; Angola’s capital market; local currency debt markets and how to access them. Confirmed speakers include Uganda’s Minister of Finance the Hon Maria Kiwanuka, the governor of Rwanda’s Central Bank, top regulators, securities exchange executives and government advisors from across Africa. Don’t miss it, for more information and bookings, go to the ADCM 2013 website. IC Publications publishes African Business and African Banker among others.

African countries (apart from South Africa) are set to place $7 billion of debt this year, buoyed by low interest rates and a huge global appetite. According to this article in Bloomberg Businessweek by Roben Farzad, this year’s debt issues will be more than the previous 5 years combined and African capital markets are feeling the boom.
No wonder international investors who are “grabbing for yield and growth” (according to Farzad) are looking to Africa which the International Monetary Fund forecasts will grow at 5.6% this year against 1.2% in developed countries. But Africa’s terrible infrastructure, including electricity, bridges, roads and wastewater treatment, is costing African sat least 2 percentage points of growth. Some of the new bond proceeds are likely to go on infrastructure, which needs investments of up to $93 billion a year.
The article cites research from JP Morgan Chase that average yields on African debt fell 88 basis points in the past 12 months, to 4.35%. “Nigeria, Gabon, Ghana, Ivory Coast, Namibia, the Congo, Senegal, and the Seychelles have all seen their borrowing costs fall this year.”
“It’s a hugely exciting story,” Jim O’Neill, the chairman of Goldman Sachs Asset Management who plans to retire this year, said in an April 23 interview with Bloomberg Television in London, writes Bloomberg reporter Chris Kay: “The only thing one has to be a little bit careful of are many of those markets are still very undeveloped and suddenly there’s a lot of people around the world regarding Africa to be sort of fashionable and trendy.”
Farzad wonders how easy it will be to “service so much easy-money debt when the credit cycle turns, or if commodities and political stability decline. At least for now, though, you get the impression that sub-Saharan Africa has turned a corner in global capital markets.” And journalist Chris Kay quotes Charles Robertson, global chief economist at Renaissance Capital: “For governments, great, don’t look a gift horse in the mouth. I still don’t believe investors are getting risk-adjusted returns in the dollar-bond space.”
According to Kay, debt-forgiveness programmes have helped 45 African nations cut debt to about 42% of gross domestic product this year from an average 120% in 2000, according to data compiled by Bloomberg and IMF estimates. South Africa’s Finance Minister Pravin Gordhan says debt will peak at 40% of GDP in 2016, compared with more than 100% for the U.S. and an average 93% in the eurozone.
Another reason why Africa offers lower risk is that taxpayers have no expectations of massive social and other spending in nearly all countries. Meanwhile global appetites are shown by the $20 trillion reportedly invested in debt at less than 1% yield.

Some potential issuesNigeria planning to offer $1bn in Eurobonds and a $500m Diaspora bond, according to Minister of State for Finance Yerima Ngama. It was recently included in JP Morgan and Barclays local bond indices. Yields on the existing $500m Eurobond, due 2021, were down to 4.05% by 3 May, from a peak of 7.30% in October 2011.Kenya really boosted investor confidence in Africa with its peaceful outcome after elections on 4 March and the Finance Minister Robinson Githae said on 11 March they could be in line to issue up to $1bn by September.Ghana fuelled by an oil boom, has seen its debt yields on the 10-year bonds down 3.43 percentage points to 4.82% since their issue in October 2007, said Bloomberg.Zambia successfully raised $750m last year at 5.625% and is thinking to return for another $1bn. Yields were up 20 basis points to 5.66% by 3 May.Tanzania has asked Citigroup to help it get a credit rating before issuing a maiden Eurobond of at least $500m. Finance Minister William Mgimwa said a total of $2.5bn was bid for a private offering of $600m of Government debt in March. According to this story on Reuters that bond’s pricing and structure at the time had shocked markets and appeared to benefit investors: “The cheaply priced US$600m seven-year private placement was described as a “disaster” by one banker. And certainly the immediate secondary market performance looked terrible. The bonds jumped 2.75 points on their first day of trading.. That works out at a cost to the government of US$4m a year in coupon payments, assuming that the bonds could have priced at the tighter level.”Angola did a private sale of $1bn in debt in 2012 and will go for $2 billion this year, according to Andrey Kostin Chairman of VTB Bank OJSC, who helped arrange the first issuance, last October.Mozambique and Uganda may also issue foreign currency bonds of $500m each, according to Moody’s last October.Gabon’s $1bn of dollar bonds are down 4.78 percentage points to 3.13% since they were issued in December 2007.

The first Eurobond issued by Rwanda, due to mature in May 2023, raised $400 million at 6.875%. According to this article in Bloomberg Businessweek, some of the money will be used to pay for building a 28-megawatt hydropower plant. The fund received some $3.5 billion in orders for the bond, which has a coupon of 6.625%, and Finance Minister Claver Gatete said on 24 April that 250 investors took part, according to a report in New Times.
Speaking at the World Economic Forum in Cape Town this week, Gatete said the hydropower plant will be fully operational by June 2014, with 14-MW already onstream by December. Last month he told reporters the rest of the money will be used to complete the building of Kigali Convention Centre and pay off some of state-owned RwandAir’s debt for its expansion programme.
According to local news reports in April, he said: “The bond, which was oversubscribed, signals that international investors have confidence in Africa beyond the usual commodity growth story. Rwanda’s intentions are to invest in infrastructure as part of building a modern, dynamic, service-based economy that is connected to international markets and that allows for rapid development.”
Bloomberg quotes him this week: “We didn’t just go to the market to look for any amount of money — we went for specific projects,” he said. “We have to be very careful when we go to the market and defining what the money will be used for.” But it could sell more debt if it needs to fund “high-impact” projects in tourism and energy.
“Very good news for the country…#Rwandabond, investors are honest judges on our country’s story and progress…they have said it,” the President wrote on his Twitter account @PaulKagame.
The bond has which has a coupon of 6.625%, and the issue was handled by BNP Paribas and Citigroup as joint lead managers, with legal work by London lawyers White & Case, according to their press release , which adds they advised 6 of the last 7 sub-Saharan African sovereign issues. A Rwandan Government delegation did roadshows in Boston, Frankfurt, Hong Kong, London, Los Angeles, Munich, New York and Singapore. Reuters quoted the fund managers saying it was “priced to perfection” and quoted Mark Bohlund, senior economist, sub-Saharan Africa, at IHS Global Insight: “If you want to have exposure to sub-Saharan Africa but you’re worried about a drop in commodity prices and you want to rebalance your portfolio Rwanda is a good investment.”
The yield on the 6.875 percent dollar bond due in May 2023 was little changed at 6.9 percent by 8 May. it is traded on the Irish Stock Exchange. Fitch Ratings rated long-term foreign and local currency rating at B, five levels below investment grade. Standard & Poor’s also gave B with stable outlook. Rwanda’s economy grew by 8.2% for the last 5 years but the Government targets an average 11.5% annual growth in the Economic Development and Poverty Reduction Strategy II (EDPRS II).
The latest IMF mission commented [link] on 16 April: “The economic outlook for 2013 has weakened somewhat since the 5th review. The growth of the construction and service sectors is expected to slow down in response to tighter economic policies. This will be partly offset by stronger growth in agriculture (food crops), for which the first harvest of the year was good, and an acceleration in foreign-financed investment projects. Growth is expected at 7.5% for the year. Downside risks predominate, stemming from possible cutbacks in aid, delays in project implementation, and a more challenging global environment. Inflation is expected to rise to 7.5% by end-2013.”